Is Micron Technology a Waste of Money?

Micron Technology (MU) announced fourth quarter ended September 3, 2015 total revenue of $3.60 billion and within the quarter’s revenue guidance in the range of $3.45 billion to $3.7 billion. The revenue for the quarter declined 7 percent sequentially compared to $3.85 billion in the third quarter of 2015 and was down 15 percent compared to $4.23 billion in the fourth quarter of 2014. Micron has also provided revenue guidance for the first quarter of fiscal year 2016 and estimates non-GAAP revenue in the range of $3.35 billion to $3.6 billion.

Micron Technology declared fourth quarter of 2015 non-GAAP net income of $399 million, or $0.37 of diluted earnings per share as against net income of $620 million, or $0.54 of diluted earnings per share in the third quarter of fiscal year 2015.

The company estimates non-GAAP operating income for the first quarter of fiscal year 2016 to be in the range of $260 million to $320 million and non-GAAP diluted EPS in $0.20 to $0.26 range.

The semiconductor systems provider reported continued sequential and year-over-year decline in both its top and bottom lines primarily due to strong near-term market headwinds, particularly from the weakening global PC demand which is negatively impacting the PC DRAM segment.

A look at the segments

The Compute Networking Business Unit (CNBU) of Micron Technology was negatively impacted by weaker average selling prices (ASPs), mainly due to the ongoing weakness in demand from the strategic PC segment. CNBU witnessed healthy growth in the Enterprise segment with stable expansion for the CNBU networking segment.

Micron is continuously and strategically investing in growth of advanced flash storage and the company’s 16-nm planar TLC NAND has successfully qualified with many key customers during the quarter. Micron is presently optimizing its products portfolio to minimize and avoid any contact with the transactional markets while continuing to serve superior-value segments.

There’s a mix of performance from the key business segments of Micron with the Compute Networking Business Unit (CNBU) being impacted by the ongoing weakness in global demand for memory chips. However, Storage Business Unit is expected to witness strong growth with the emerging cloud computing technology which is forecasted to portray significant demand for memory chips leveraged in cloud, going forward.

The advancing mobile system designs gradually enhance memory density, thus significant demand for the company’s memory chips for mobile. Micron’s integrated NAND and DRAM portfolios solidify its competitive position and there’s growing shipments for the company’s low power DDR4 memory units across its key customer base.

The Embedded Business Unit (EBU) segment of Micron illustrated excellent quarterly performance with solid top line growth achieved from the automotive segment and superior continued expansion recorded from the industrial multi-market business for the quarter.

Going forward into the fiscal year 2016, Micron Technology focuses on deployment of advanced technology and delivering superior manufacturing efficiency. Micron Technology targets on offering value-added solutions to its key set of strategic customers and major market segments. In addition, the key semiconductor systems provider is focused on strengthening long-term customer relationships through strategic growth investments.

The continued rising acceptance of cloud platform as a major storage destination for ever-increasing data volumes from the mobile devices is believed to accelerate demand for the key memory chips for mobile devices and hence, hugely benefit the technology pioneer Micron.

Micron has received a “Hold” rating from Zacks Investment Research, primarily driven by solid company’s financial position with attractive balance sheet, income statements and cash flow statements, along with significant growth potential as of now. The key analyst’s price target for the stock varies from $12.5, being the most bearish outlook to $40 for most bullish estimate.

The consensus estimate among 33 polled investment analysts evaluating Micron Technology suggests that the company would outperform the market. This consensus estimate is maintained since the investment analyst’s sentiments got better on Jun 14, 2007. The earlier consensus estimate suggested investors to hold their position in the company.

A majority of the key investment analysts are extremely positive about the growth prospects of Micron Technology considering its solid financial position and attractive growth potential, given its strategic foray into the cloud market segment.

Conclusion

Overall, the investors are advised to “Hold” their position in Micron Technology, Inc. looking at the company’s notable growth potential as discussed above coupled with a solid financial position with trailing P/E and forward P/E rations of 6.32 and 6.86 respectively, depicting logical company valuations and comparable to the industry’s average P/E of 8.49. The PEG ratio of 11.51 indicates slightly costlier company growth compared to an attractive industry’s growth average of 0.56. The profit margin of 17.90% seems impressive. However, Micron needs to optimize its debt-burdened balance sheet with significant total debt of $7.39 billion against weaker total cash position of $3.52 billion only, restricting the company to continue with its daily operations profitably.